A second day of talks aimed at ending the siege of the Church of the Nativity in Bethlehem has ended without any sign of a major breakthrough.

But a senior Palestinian official said both sides were exploring creative solutions about what to do with Palestinian militants wanted by Israel who are among the more than 200 people inside the church.

Arafat was said to be looking "calm and serene"

Earlier on Wednesday, a European Union team led by foreign policy chief Javier Solana held talks with Palestinian leader Yasser Arafat in his besieged Ramallah headquarters.

Mr Solana later met Israeli Defence Minister Binyamin Ben-Eliezer and said he also planned to meet Prime Minister Ariel Sharon.

In further military action, Palestinian witnesses said Israeli tanks entered the West Bank city of Hebron early on Thursday and opened fire in what appeared to be an attempt to capture a suspect.

Witnesses said they saw 10 tanks and 10 armoured personnel carriers, but there has been no word from the Israeli military.

In other developments:

US Secretary of State Colin Powell says he has seen no evidence of a massacre the Jenin refugee camp

Three members of the militant al-Aqsa Martyrs Brigade die in an explosion near Jabalya refugee camp in Gaza

The Islamic militant group Hamas urges children to refrain from futile attacks against Israelis after three 14-year-old Palestinian boys are shot dead as they try to enter a Jewish settlement

Israeli forces kill two people during a raid on a Palestinian-ruled village near Hebron

Bethlehem talks

The BBC's Richard Miron in Bethlehem says mention of a possible deportation of the armed militants in the church to what a senior official called a "friendly foreign country" marked a shift in the previous Palestinian position, which discounted any discussion of exile abroad.

Conditions inside Bethlehem's Church of the Nativity are deteriorating

But Bethlehem Mayor Hannah Nassa, who participated in the meeting, spoke of the tense atmosphere caused, he said, by an exchange of gunfire that preceded the talks and which resulted in the death of one armed Palestinian security official inside the church.

Another Palestinian and an Israeli soldier were wounded in the clashes.

But, in a sign that the three-week long standoff may be drawing to a close, there was, according to Palestinian sources, agreement on other matters.

A number of teenage boys inside the church, as well as two bodies there may be brought out soon, our correspondent says.

UN inquiry

The talks come as the UN considers the appointment of new members to an inquiry panel that is to investigate an Israeli army attack on the Jenin refugee camp in the West Bank, after Israel demanded military counter-terrorism experts to be included.

UN Secretary General Kofi Annan has sent the three existing members of the panel to Geneva for preliminary meetings, before they head to the region on Saturday - one day behind schedule.

A UN inquiry into the Jenin offensive has been delayed

Palestinians, who accuse the Israeli army of killing hundreds of people in Jenin, say Israel is trying to undermine the integrity of the fact-finding process.

Israel insists that those killed were overwhelmingly hardline Palestinian militants who chose to fight to the death after Israeli troops gave them a last chance to surrender.

US Secretary of State Colin Powell said a senior American official who toured the Jenin camp last Friday had seen neither mass graves nor large numbers of bodies.

Mr Powell said it was in Israel's best interests to allow a UN investigation to go ahead.

Panel members

Mr Annan named former Finnish President Martti Ahtisaari to lead the UN fact-finding mission.

The team also includes Cornelio Sommaruga, former president of the International Committee of the Red Cross, and Sadako Ogata, the former UN High Commissioner for Refugees.

A retired US General, William Nash, and Ireland's assistant police commissioner Peter Fitzgerald have been appointed in an advisory capacity for military and police issues, respectively.

UN spokesman Fred Eckhard said Mr Annan was confident that Israel and the UN would resolve their differences over the mission.

At General Nash's request, Mr Eckhard said, the secretary-general agreed to add another military expert to the team.

Israel launched its offensive to root out what it calls the Palestinian "infrastructure of terror" following a wave of suicide bombings that killed scores of people in Israeli cities.